Successfully investing in Moldova

published on May 16, 2018

How do you assess the current economic situation in Moldova?

Despite the negative impact of the 2015 economic crisis in Russia and Ukraine, the economy of the Republic of Moldova has shown moderate, continuous growth. In 2017, the GDP increased by about 4.5 per cent compared to the previous year (according to the initial estimate of the National Bureau of Statistics). 2017 was a very good year for foreign trade (a strong rise of 18.4 per cent compared to 2016). Also private consumption was on an upward trend, fuelled by an increase in real salaries (about 5.3 per cent) and money transfers from abroad. Moreover, also industrial production picked up.

In the "Doing Business Report 2018", Moldova managed to defend its previous year's 44th rank (out of 190 countries). The neighbouring countries Ukraine and Romania are ranked 76th and 45th.

How would you describe the investment climate in Moldova? Which sectors offer the largest potential?

The EU Association Agreement entered into full force on 1 July 2016. Low operating and payroll costs, low tax rates (corporate tax at the rate of 12 per cent), and the geographical proximity to the EU and CIS markets as well as to the Black Sea make Moldova an attractive and competitive country in Europe.

The National Strategy for Investment Attraction and Export Promotion 2016-2020 identified 7 industrial sectors that enjoy priority in terms of promotion of investments and exports:

Agriculture and food industry
Automotive industry
Business services such as Business Process Outsourcing
Clothing and footwear
Electronics
Information and Communication technologies and
Production of machinery and its parts.

The agricultural and service sectors offer particularly great potential. The number of companies operating in this area has more than doubled over the last 10 years. In this context, also Business Process Outsourcing (including automotive suppliers and information and communication technologies) is of great importance – in particular due to the high level of education of the population and the low payroll costs in Moldova.

Investors can use enormous advantages offered in the 7 free trade zones and the 2 regions with a similar status. There, significant tax reliefs are granted, such as a 25-100% reduction in income tax, exemption from import VAT, and considerable customs reliefs on imports of goods for processing as well as on exports of finished goods.

A novelty for the Republic of Moldova is the introduction of a new tax regime for residents of IT parks. They will be only subject to a single uniform tax of 7 per cent. An IT park can be operated "online", so once properly registered, residents can carry out their business activity also from their offices and enjoy the above-mentioned tax reliefs. In the first 3 months of 2018, over 160 residents of the Moldova IT Park were registered.

What challenges do German companies face during their business ventures into Moldova?

The Moldovan market has not yet been divided and offers good opportunities for implementing long-term strategies.

The country is facing multiple challenges, including the necessity to fight corruption, to improve the investment climate and develop a reliable financial sector. Also administrative and judicial reforms are needed. The Republic needs improvement in the civil infrastructure, implementation of structural reforms, further stabilisation of the political situation and harmonisation of national laws with the EU standards.

The EU Association Agreement has been in force for almost two years. What implications does the Agreement have for the country?

After the Agreement was signed, the international markets opened up for Moldovan products. The Agreement also established a Deep and Comprehensive Free Trade Area – DCFTA. The Free Trade Area and the successive approximation of the Moldovan legal provisions to the EU laws¬ enable the country to maintain a close link with the European¬ Single Market.

The export of goods and services is of great importance for Moldova and increased by 18.4 per cent in 2017 compared to the previous year. In recent years, there has been a clear reorientation of exports from CIS States to the EU. In 2017, nearly 66 per cent of exports were sent to the EU. From January to February 2018, exports also impressively increased by 38.0 per cent year-over-year (according to the National Bureau of Statistics).

Foreign trade and the economic situation of the Republic of Moldova could have developed even better if not for the embargo by Russia, the banking crisis, and the complicated international economic situation. The embargo had a significant adverse impact on the country's economic interests and, moreover, considerably restricted opportunities arising from the DCFTA. Besides, the country's economy is very much affected by the fact that 2 of its most important economic and trading partners have entered into a so-called covert war.

But thanks to European programmes, many projects in the area of economic and social infrastructure were implemented. The implementation of the DCFTA is, however, an ongoing process and it will be possible to estimate its tangible results only after some years. It can be expected, though, that Moldovan exports to the EU will further increase and contribute to the economic development.

In your opinion, how will Moldova develop?

For 2018, the International Monetary Fund expects economic growth of 3 per cent; the European Bank for Reconstruction and Development (EBRD) expects growth of 3.5 per cent.

The Republic will continue its approximation to the EU and will further use the potential of the EU association and DCFTA, in particular in sectors such as agriculture and services (including IT) but also in the industry.

Thanks to its favourable geographical location between Ukraine and the EU member state Romania, Moldova can smartly use this special proximity to the EU and CIS markets. Cross-border projects and entrepreneurial activities open up business opportunities, from which Romanian and other European companies can benefit.